Outlook: The energy complex has shifted lower this morning as rising Covid cases in China and increased lockdown measures are likely to pressure global demand. China plans to impose strict testing requirements during the Lunar New Year holiday season, which typically sees tens of millions of people traveling during the 7 day festival. Covid-19 cases in China are rapidly increasing at rates not seen since the first wave of the pandemic broke out in early 2020. Those rising cases are forcing millions of people near Beijing to be placed into lockdown. Chinese crude oil demand has been supporting the complex for the majority of the past year, as Chinese refiners processed a record amount of crude oil in 2020. Preventing steeper losses and providing some support to the complex comes from an IHS Markit report that shows that U.S. manufacturing activity increased to its highest level in over 13 years in the early parts of January. IHS Markit’s flash U.S. manufacturing PMI rose to 59.1 in the first half of January, which is the highest since May 2007. Manufacturing PMI in December was measured at 57.1. A measure above 50 indicates an expansion, while a reading below 50 indicates a contraction. Despite the uptick in economic activity, equities are starting the day in the red. All three major averages are trading slightly below even. Pressuring equities lower stems from doubts in regards to the ability of Congress to pass the $1.9 trillion stimulus plan that President Biden has proposed. House Speaker Nancy Pelosi has stated that the House will start to work on the stimulus plan immediately, with the potential that a bill could hit the House floor by the first week of February.
Crude
- In the first year of the Phase One trade deal between the U.S. and China, China imported $100 billion worth of U.S. goods, which is about 58% of the targeted $173.1 billion for 2020, according to Chinese customs data. With the change in administration, the fate of the trade agreement remains somewhat uncertain, as President Biden has not made any official comments on the agreement that was established under the Trump administration.
- Iranian oil exports have risen “significantly” despite strict economic sanctions, according to the Iranian oil minister, Bijan Zangeneh. No official export figures were given however. Iranian crude exports were at nearly 3.0 million bpd in 2018, but fell to as low as 300,000 bpd last year. Iran has called on the Biden administration to return to the 2015 nuclear accord, which would allow Iranian crude exports to rise back to pre-sanction levels. Iranian government officials have stated that they would be fully compliant to the nuclear accord if the agreement were reinstated.
- The Reuters poll of analysts and traders is expecting the EIA to report a 1.167 million barrel draw in U.S. crude oil stocks for the week ending January 15.
- The Baker Hughes Rig Count Report will be released today at noon CST. Last week they reported that U.S. producers added another 12 oil rigs, bringing the count up to 287.
- The March crude oil contract is trading $0.52 lower at $52.61. The 20-day and 100-day moving averages are $50.86 and $44.18, respectively. The 14-day RSI is 60.48%.
- As of 9:22 am CST: March Brent is down $0.68 at $55.42, the U.S. dollar index is 0.007 higher at 90.138, while the nearby e-mini S&P 500 futures contract is down 12.75 points at 3,833.25.
Diesel
- The February ULSD contract is trading $0.0171 lower at $1.5835. The 20-day and 100-day moving averages are $1.5457 and $1.3169, respectively. The 14-day RSI is 61.41%.
- The Reuters poll of analysts and traders is predicting that the EIA will report a 1.214 million barrel build in U.S. distillate stocks for the week ending January 15.
Gasoline
- The February RBOB contract is trading $0.0158 lower at $1.5321. The 20-day and 100-day moving averages are $1.4740 and $1.2441, respectively. The 14-day RSI is 63.81%.
- The Reuters poll of analysts and traders is estimating that the EIA will report a 2.771 million barrel build in U.S. gasoline stocks for the week ending January 15.
Propane
- Propane prices have taken a slight dive this morning. At last look Conway was down $0.0150, trading at $0.8350. Mt Belvieu was down $0.0300, trading at $0.8300.
- According to an OPIS survey of analysts and traders, the EIA is likely to report that U.S. propane inventories fell by 3.8 million barrels last week.
- IHS Markit is estimating that U.S. propane stocks fell 4.672 million barrels in the week ending January 15.
Natural Gas
- The February Natural Gas contract is trading $0.034 lower at $2.457. The 20-day and 100-day moving averages are $2.596 and $2.983, respectively. The 14-day RSI is 38.46%.
- This morning the EIA reported that U.S. natural gas inventories fell 187 Bcf in the week ending January 15. Natural gas stocks are 36 Bcf higher than last year at this time, and 198 Bcf above the five-year average.
